On June 23, CNBC-TV18, quoting VCC Circle had reported that GTL Infrastructure and Reliance Infratel are in talks to merge their tower operations.

The transformational deal will be implemented through a demerger of RINFRATEL’s tower assets into GTL INFRA. Reliance Infratel will demerge its tower assets into GTL Infra fibre optic network. The related assets will however remain with RCOM.

Investors with a three-year horizon can consider buying the stock of NHPC, the largest hydropower generator.

The stock is trading at reasonable valuations even as earnings are expected to grow at a strong pace over the next four years, thanks to higher capacity additions. The company proposes to add 4,292 MW amounting to 83 per cent of the current capacity by FY2013, which may ramp up earnings and also improve the return on equity. While the projects in progress have depressed return on equity, most of them are in advanced stages of development now.

At current market price of Rs 28.5, the stock is trading at 22 times its estimated FY11 consolidated earnings and 1.39 times its estimated FY11 consolidated book value. In price-book value terms, NHPC is at a discount to NTPC and PowerGrid. With return on equity set to improve and earnings likely to grow at strong double digits, the stock deserves a higher valuation. The company's Rs 6,189 crore of cash (inclusive of Rs 4,025 crore raised through IPO) works out to Rs 5 a share.

NHPC is under-leveraged and deployment of its cash in projects with a higher normative debt:equity may allow it to improve its returns on equity. The current debt-equity is at 0.64:1.

Its increased capacities will earn better tariffs after the new CERC norms which assure a post-tax return on equity of 15.5 per cent, compared to 14 per cent earlier. With most of the costs and external risks (including cost overruns) pass through to customers, the margins may improve. In addition, the company can also earn higher incentives by generating more than the design energy.

NHPC has 9,631 MW in planning stage to be executed over next decade. The planned capacities may have about 40 per cent allocated to merchant power in line with the National Hydro Power Policy, 2008. Even as the merchant tariffs over the next decade may moderate with increasing power supply, hydro projects with their lower costs (than thermal projects) may earn good returns. NHPC's projects are situated on perennial rivers which reduces hydrological risks. It also earns carbon credits on some of its projects which can be traded to augment revenue streams.

NHPC plans to diversify its fuel base by entering into thermal power through its subsidiary NHDC. The latter is planning 2,640 MW of thermal plants in Madhya Pradesh.

Other issues: The 25 per cent mandatory public holding norm may force the company to dilute stake again; given that the company has huge cash resources, it may be a candidate for disinvestment.

Any regulatory decision on allowing merchant power for hydel power projects to recover return on equity also offers upside for NHPC.

Shareholders can refrain from applying to the rights offer made by Suzlon Energy, as the additional capital from the rights is unlikely to be earnings-accretive in the medium-term. The offer's primary objective is to discharge certain loans availed of by the company from the promoter group. The rights offer, together with any FCCB conversion in the medium-term, could pose the risk of earnings dilution. While the long-term prospects for the wind energy sector and, therefore, for Suzlon, along with its foreign subsidiaries remain promising, the group has the immediate challenge of meeting its repayment obligations. While FCCB conversions could put to rest the company's debt obligations, the near-term impact of any such equity expansion on the earnings could be dilutive.

Investors can consider booking profits in the stock of ARSS Infrastructure and Projects, a construction contractor in the infrastructure space. At Rs 1,177, the stock is valued at 20 times the trailing 12-month earnings. Peers such as Tantia Constructions trade at valuations of 8 times.

After a positive start to the week, the markets exhibited lacklustre movement on most days and pared gains at close. Eventually, the benchmark indices ended flat. The Sensex, which rallied to a high of 17,920, closed at 17,574, up just four points.

Foreign institutional investors (FIIs) play a significant role in the Indian equity market, both as long-term investors and as short-term traders. It is therefore not surprising that the Revised Discussion Paper on the Direct Taxes Code (DTC) dwells at length on the issues pertaining to the taxation of these investors.

Technofab Engineering (TFEL) is engaged in the business of providing engineering, procurement and construction (EPC) services on turnkey basis. The company undertakes execution of a wide range of balance-of-plant (BoP) and electro-mechanical projects in the power, oil & gas, water & wastewater treatment and other industrial & infrastructure sectors in both India as well as international markets. The company currently executes projects in 15 states in India as well as Kenya, Ethiopia and Fiji.

Direct Taxes Code (DTC) is proposed to replace the Income-Tax Act from April 1, 2011, with the objective of simplification of tax structure and align it with the economic environment.

DTC was presented to the public for debate in August 2009. After due deliberations and suggestions from stakeholders, a Revised Discussion Paper (RDP) was presented recently by the Government for public comments. The RDP has reconsidered many proposals in the DTC in line with the expectations of the public.

Investors can consider reducing exposure to the stock of Reliance Power, given that the recent gains in the stock have placed it at a stiff valuation relative to peers in the sector. The stock is trading at a 38 per cent discount to its issue price.

Those with a high risk appetite can consider investing in the initial public offer of small-sized Engineering, Procurement and Construction (EPC) services player, Technofab Engineering, with a two-year perspective. Strong growth in revenues and earnings over the last couple of years, low gearing, presence in lucrative segments such as nuclear power and water management are the key positives for this company. The offer price band of Rs 230-240 discounts the likely per share earnings for FY-11 by 7.6-8 times. The valuation is at a discount to comparable peers such as Hindustan Dorr Oliver and BGR Energy Systems.